The Perfect Storm is Coming for Our Profession
By Bill Reeb, CPA, CITP, CGMA
In my last article, I introduced the idea that the perfect storm is about to hit our profession and listed several conditions converging together to create this unique situation. (See The Perfect Storm - Part I) The nine conditions I included were:
- The demographics of our profession are changing.
- The changing demographics are impacting the sale or merger of CPA firms.
- The integration of technology and robotics is affecting the processing of transactional accounting work.
- Our global economy continues to open up our marketplace in the United States to new competitors.
- There’s an accelerating need for our professionals to have very strong technology skills to continue to be able to perform our jobs in the future.
- We have to be able to shift our services to deliver higher value to our clients.
- Our skill sets and competencies need to evolve at a very rapid pace.
- The mergers, amalgamations or joint ventures that cross national borders are in a state of flux.
- Licensure issues are having an impact within the United States.
As I said in that article, any one or two of these nine factors by themselves, in storm parlance, would be enough to create a very damaging weather phenomenon. But when you consider all nine of these conditions converging on our profession in the same five-year period, I don’t think my storm analogy is overly dramatic.
In the previous article, I covered the first two conditions, the first being demographics and the second being the impact on a sale or merger based on those demographics. In this article, I’m going to cover the remaining seven of the nine conditions.
This article was not written to scare anyone. It’s meant to be a prediction about the future, which if you prepare for it, can actually have a positive impact rather than a negative one. But just like all storms, if you are not prepared or if you have not made the effort to stormproof your firm, the damages can be devastating.
Technology, Robotics and Artificial Intelligence in Transactional Work
The integration of technology and robotics in processing transactional accounting work will lead to the decline in revenues produced from delivering our firms’ traditional services in the future. According to the World Economic Forum “Future of Jobs Report,” two of the top 10 jobs expected to decline are:
- At number two, accounting, bookkeeping and payroll clerks;
- At number seven, accountants and auditors.
The good news about predictions is that they, like mine, are based on a fairly static or incremental change environment. They don’t consider leaps in change that leadership can make. So while the prediction of us holding the number two and seven slot in the jobs most likely to decline is scary, we have the ability to change that.
In another study by Deloitte/Accenture, robotics and artificial intelligence are predicted to automate or eliminate up to 40 percent of transactional accounting work by 2020. Cognitive expert advisors (artificial intelligence systems that aim to simulate human thought) could replace entry-level tax, accounting and finance functions, and accounting software might accomplish more complex tasks by acting as virtual assistants.
Since 2020 is right around the corner, it’s easy to dismiss predictions such as this as hype, but a commonly quoted statement from Roy Amara, a researcher, scientist and past president of the Institute for the Future, is “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” This quote has been attributed to many, including Bill Gates; the key isn’t who originated it, but how widespread the quote is referenced.
So, will 40 percent of the compliance work CPAs do today go away due to technology? Of course not. But the handwriting is on the wall. We are already seeing clear signs that accounting software is gaining in sophistication and requiring less human interaction to create a financial statement than was required just a few years ago. We also see that companies like Intuit are now providing a tax return review by a CPA while working with TurboTax for $30. These are just two examples.
The idea that 40 percent of the compliance work we are currently doing will go away is probably conservative; it is just that the predicted timing is wrong. And when you consider how much of the work a typical CPA firm does today that is purely transactional,
if you are not starting to address this today, you won’t be ready when the real drop occurs.
The Impact of Globalization on Our Traditional Services
Our global economy continues to open up our marketplace in the United States to new competitors offering traditional services at much lower prices. As covered in far more detail in a recent article titled “The Damage Caused when Firms Do NOT Constantly Push Work Down – Part 2,” here are a few highlights supporting this point.
Image that tomorrow, someone with a couple of years of accounting experience walked into your office and said, “I would like to work for 20 cents on the dollar as compared to what you’re paying to hire people right out of school.” Well, you would not only hire them in an instant, but you would ask if they have any brothers, cousins or friends who feel the same way. That is what outsourcing looks like to many firms.
In the past, to pull off having full-time employees in India, China or some other country in the world, you had to be a big enough organization with deep pockets to send people over to those locations, find space to work, recruit, hire employees, hire management, train everyone, invest in technology, establish security protocols and so much more. It was just too big of an undertaking for the vast majority of CPA firms.
Today, that landscape has changed, as new options are popping up every year that allow smaller firms to hire one or two employees and have them plugged into an outsourcing operation. Those employees work for you full time and you can, all in, pay about 25 cents on the dollar for that assistance. So, if you are not outsourcing, you need to ask yourself why, because your competitors are likely bidding on work at significantly lower prices only to make more money doing the work, due to leveraging these economies.
The Changing Core Competencies Required by Our Professionals
Consider the accelerating need of our professionals to have very strong technology skills in data analytics and automated accounting systems and processes to continue performing their jobs in the future. For example, when you think about performing assurance work, more and more, we’ll need to be able to shift from simply working around the automated systems to working through them. Additionally, as blockchain becomes more prevalent in systems, as well as the incorporation of artificial intelligence into processes, the CPA of the future will need to be capable of challenging how well those systems are working and whether their decision-making processes are operating as expected/correctly.
No matter what field you are working in today, technology skills are becoming a fundamental requirement. We are not alone in this. As I recently shared at an AICPA Council meeting, when I was skiing recently, I asked a young man where he was from. He said “Maryland.” He then added, “I attend Annapolis.” When I asked what he was interested in doing, he said, “I want to join the Marines, but it doesn’t matter, it is all routed in technology.”
Check with your auto mechanic and see if he/she can fix your car without utilizing technology. Almost every job has been slowly shifting from manual to automation assisting the human, to now shifting to the human assisting automation. I recently saw on TV a company demonstrating how the equipment in a quarry was digging up rock, loading it onto a truck, hauling it up a winding dirt road to a distribution site and then unloading it. The only function of people in this process was standing at each transition point watching the equipment work. They were not there to do the work, but rather, they were there to assist should a technology malfunction occur while the equipment was doing the work.
The point is simple. The CPA of the future, just like the Marine of the future, will need to be significantly more technologically savvy and capable. The difference is that we have to create a profession that attracts people with these skill sets to want
to join us rather than trying to make someone who is not that interested in technology become a technologist.
We Need to Live Up to Our Profession’s Mantra of Being Trusted Advisors
We cannot continue to sustain the accelerated success our profession has been enjoying for the past few decades by doing what we have always done. We have to be able to shift our services to deliver higher value to our clients.
This shift starts with us living up to being our clients’ most trusted advisor (both personally and in business). This job isn’t hard to do ... it’s fun to do. I have taught thousands of CPAs to augment every service they perform with a consultative conclusion. If you’re doing tax work, you should be talking with your clients about how to better plan and manage the financial aspects of their life (life planning). If you’re preparing financial statements, you should be discussing what that information might be suggesting, such as trends, changes and most of all, the things the client might do to make sure the end results are in line with their goals and aspirations.
It doesn’t matter what we do. We shouldn’t consider THAT work completed before we spend time discussing how the information might impact the future, either positively or negatively, and then create plans to shore up the likelihood of the positive changes occurring or the negative ones being mitigated.
We need to stop thinking this is a service we’ll perform when we have time. We need to stop pretending like we’re doing this when the reality for most CPAs is that we rarely do it. We need to hold, at a minimum, every partner and manager accountable to having these conversations with their client ... not once in a while, but every time.
One of the misnomers that gets in our way of moving forward more diligently in this service area is the idea that advising means selling. To most CPAs, selling is not what we signed up to do. A real advisor is simply trying to understand what keeps their clients awake at night, to connect with them about their aspirations and expectations, to listen while they share their personal or business areas of struggle, etc. So, when you think of it this way, advising is right up our alley, because helping is what every CPA I have worked with is intending to do.
If we can add a future-focused discussion into every compliance or transactional service we perform, we’ll be delivering higher-valued services to our clients that they are willing to pay more money for. We’ll also be extending the life of some of the transactional work, because it’s part of the bundle of information required for an advisor to be able to perform his/her work. If you don’t add advice, religiously, to everything you do, then not only can you expect sometime in the next five years to see a great deal of the transactional/compliance work go away, you can also expect your overall revenues to decline too.
Don’t wait until it’s too late ... until your clients are walking out the door ... to decide it’s time to become an advisor. Do it now while you have time to perfect your art and build the reputation that you should be the first call
every client should make when they’re trying to determine what to do next.
The Quality of Our Soft Skills Will Likely Be the Greatest Predictor of Future Success
To deliver higher-valued services, our skill sets and competencies need to evolve at a very rapid pace. Not only are most organizations NOT addressing this at a fast-enough pace, even those that are making the investment in competency development are often doing so more on the technical side than on the “soft skill” side.
The problem with this is that, when you look at where our profession is heading with service delivery, I believe the quality of those “soft skills” will prove to be a greater predictor of our future success than the technical ones.
This is also supported by sources like the World Economic Forum, which recently released a list of top 10 skills sets needed in 2020 to thrive in the 4th industrial revolution. They were, in order of importance:
- Complex problem-solving;
- Critical thinking;
- People management;
- Coordinating with others;
- Emotional intelligence;
- Judgment and decision-making;
- Service orientation;
- Cognitive flexibility.
If you think about working as an advisor, you can quickly see the coloration of skills required that the World Economic Forum is making in their “Future of Jobs” report to the future of our profession. We are not living in a vacuum. All technical
jobs that are repetitive in nature are meeting the same competitive challenges. They are being replaced by some form of automation, whether it be in the form of robotics, software bots, augmented reality, big data, blockchain, data analytics or something
else. Therefore, the opportunity professionals have will be less about getting the information and more about what to do with it, and what to do about it.
The Global Landscape of the Accounting Profession is in a State of Flux
There are mergers, amalgamations or joint ventures that cross national borders for the United States/United Kingdom, Australia/United Kingdom and Australia/New Zealand that are in a state of flux. Several years ago, the American Institute of CPAs (AICPA) formed a joint venture with the Chartered Institute of Management Accountants (CIMA) to create a worldwide platform supporting the accounting profession, now with about 670,000 members in 179 countries.
Many organizations worldwide have either started to move in this same direction or are contemplating similar moves. The professional bodies supporting the accounting profession are facing the same challenges, as are the members within the professional bodies. This is no different than what we are seeing in the merger and acquisition market within CPA firms or even in the S&P 500.
As everyone at every level looks for better ways to deliver value to their members/clients, be prepared to expect some unexpected changes in the global accounting marketplace. As those changes occur, they will eventually trickle down and impact firms
and CPAs working in public accounting in the United States on a day-to-day basis.
The Licensure Model is Being Challenged in Most Every State
The licensure issues within the United States include 1) young people less interested in following a rigorous path to licensure and 2) many grassroots campaigns underway in various state legislatures to eliminate licensure, even at the CPA level. All of this could quickly come together and have a major impact on our profession.
What makes this movement so dangerous, in my opinion, is that both the right and the left sides of our democracy are coming together to fight the same fight. On the right, you have the idea of smaller government and on the left, you have the idea of barriers to work or right to work. Licensure is perceived by some powerful political organizations as an impediment to our future success. Some of the conversations, and introduced bills in various states, have gone so far in their wording to allow people to practice law, medicine, accounting and more, unlicensed, as long as they declare they are unlicensed.
As someone who earned his CPA license, who considers that our ethics requirements, our continuing educational requirements, our standards, our quality processes and more to be foundational to doing what we do and protecting the public interest, the fight
against licensing is a scary discussion. Without bogging down this article with a lot of details about the legislative activity that has occurred in the last 12 months, I simply would like to leave this idea with the thought that there is nothing
about our world, and the world we practice in, that isn’t undergoing change, challenges, obstacles and quite literally, game-changing events.
Where Does This Lead Us?
So where does all of this information, change and evolution lead us? On one hand, it can sound very ominous. We must consider that:
- A great deal of our work is predicted to disappear;
- More and more global competitors will enter our market;
- Our licensing process itself could be at risk;
- Our soft skills are not where they need to be;
- Technology abilities are becoming foundational in everything we are doing;
- Demographically, we are poised to have a shrinking profession, which could change how we are perceived and the services we can competitively hold onto;
- We have thousands of retiring CPAs, with many having their largest assets – their firms – at risk;
- And more.
To be clear, this article isn’t about us holding on, hunkering down and protecting ourselves so that we can ride out the storm. It is about the opposite. Many of these changes are offering opportunities for us. The best news of all is that these opportunities are easy for us to seize, because they’re what we’re noted and trusted for already. All we have to do is grab the brass ring dangling in front of us.
We need to ensure that everyone in our firm understands that our job is to be an advisor first and foremost, without losing sight of our professional standards. When you do this, you will hold on to the transactional work longer and for those who are so inclined, even disrupt yourself and help your clients find all of the constantly evolving automated solutions that will assist them. With this mindset, you’ll create opportunities to grow your revenues rather than see them shrink.
You can look to the global market as a way to lower your cost structure, increase your capacity and offer services in ways that are beneficial to both your clients and your firm. You can embrace all of the changes going on around you rather than fight them.
At the end of the day, the waves of change are identified, definitely coming towards us and are not coming as ripples, but rather as very large waves. You can decide to ride those waves or be beaten down by them.
Yes, I see this as a perfect storm coming towards us that can be devastating to our profession. But I also see that if we start acting now, it could become that once in a lifetime change facilitator we need to allow our profession to grow, become stronger and be more successful than we have ever been.
We need to respect our past while understanding that our future success will be based on our willingness to evolve and change with market demand and expectations. Simply put ... tomorrow’s CPA will be different than we are today. To be fair, it was yesterday’s leadership that allowed today’s CPA to be just as different as they were a decade or two ago. There has never been a better time to be a CPA.